While there is much debate about how quickly direct-to-consumer car sales will take off, some dealers are already selling cars “at a distance”.
However, this can be a confusing area for those not familiar with the regulations governing this emerging area of motor retail.
Although commonly referred to as the Distance Selling Regulations, the legislation that covers distance selling is actually called The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. This has been in force since June 2014 and like many of the UK’s current laws, it is based on an EU directive, in this case the Consumer Rights Directive.
What are the types of contract?
The Consumer Contracts Regulations define three different types of contract between a trader and a consumer. A distance contract, an off-premises contact and an on-premises contract.
In the scenario where there is no face-to-face contact with the dealer, it would be covered as being a distance contract.
Paul Carroll, a partner and commercial solicitor at Motor Industry Legal Services (MILS), said: “A distance contract is a contract concluded between a trader and a consumer under an organised distance sales or service-provision scheme without the simultaneous physical presence of the trader and the consumer.
“A distance contract must be concluded exclusively through one or more means of distance communication.
“Any face-to-face contact will prevent a contract being a distance contract. It is not a distance contract to take a deposit over the phone provided the consumer can change their mind and get their money back in full upon attending your premises.”
An off-premises contract would be one where a deal is concluded somewhere other than a dealer’s business premises but where there is still face-to-face interaction. This includes situations such as where a deal is concluded at a distance, by email or phone, immediately after the face-to-face deal happened.
An on-premises contract is the one dealers will be most familiar with on a day-to-day basis.
Carroll said: “It is very important to know which of the three contract types you have entered into, as many traders have entered into an off-premises contract believing that as there is face-to-face contact these regulations do not apply.”
Notable exceptions to the law
If a dealer were to do a distance sale as a one-off that was not part of a wider scheme, it could mean the regulations may not apply.
However, as Nona Bowkis, solicitor at Lawgistics, explained, it is not clear in the regulations how many one-offs have to happen before they become an “organised distance sales scheme”.
She said: “If a dealer decides as part of their business plan that they want to offer a general option for customers to buy cars without visiting the showroom, this will be an organised distance sales scheme. Taking an online or phone payment and delivering a vehicle as a one-off gesture will not.
“However, if a dealer advertises on their website that customers can call up, pay a deposit either over the phone or online and then get the vehicle delivered, that is almost certainly an organised distance sales scheme. As such, all the distance sales rules will apply.”
Carroll said the number of one-off cases would be something a judge would have to decide on a case-by-case basis.
He also said the regulations do not apply where the goods are made to the consumer’s specifications or are clearly personalised.
This is intended to cover goods that would be difficult to sell to anyone else, such as a bespoke suit. It is unlikely that choosing vehicle specifications from a manufacturer’s predetermined options lists would count under this exemption – it would have to be something more bespoke, which is likely to be limited to high-end customers at brands such as Ferrari, Bentley and Rolls-Royce.
Carroll said: “It is unclear how far a vehicle must be tailored to come under this exemption.
“Guidance from Trading Standards is clear that selecting from pre-arrange options will not be sufficient. The more extreme the bespoke nature of the goods, the more likely this will apply.”
What are the rights of the consumer?
Distance sales give the customer 14 days to effectively change their mind, but they also require dealers to provide the customer with the appropriate paperwork.
Carroll said this can be through email when the order is placed and through a hard copy on delivery of the vehicle. The cancellation period starts only when the consumer has received both the goods and written confirmation of their rights.
Failure to do so could raise the possibility of the 14-day ‘change your mind’ period being extended for up to one year. That could leave the customer a legitimate option to return a non-faulty vehicle a year after the sale.
Bowkis said: “For each sale under a scheme, the dealer must provide paperwork advising the customer they can cancel the sale within 14 days of the day the customer takes delivery of the vehicle.
“If the customer decides to cancel, they are entitled to the money back they paid for the car plus any standard delivery charges. Dealers cannot charge a cancellation fee of any kind and must make the refund within 14 days.”
A customer is also likely to be entitled to get all their money back if they refuse the car on delivery or after a short test drive.
However, anything over and above test drive mileage will mean a deduction for handling beyond that which is “necessary to establish the nature, characteristics and function” will apply.
This will largely become a case of negotiation but unlike the 30-day right to reject under the Consumer Rights Act 2015, Bowkis said there is nothing to say a dealer cannot charge for depreciation due to the additional owner.
Bowkis said: “The customer normally has to pay the cost of the vehicle being returned and a clause stating this should be included in the cancellation paperwork.
“However, if a dealer did not provide the correct paperwork, no deduction can be made and the dealer will have to cover the cost of returning the vehicle. Therefore, if a dealer is going to run a scheme, it is crucial to have all the right paperwork in place.”
This would only apply if a contract is concluded over the phone or online. A contract will be deemed as concluded even if just a deposit is paid.
Bowkis said this is why many dealers will take a “reservation fee” instead of a deposit at distance. This fee is usually redeemable against the purchase of the car when the customer turns up to meet the dealer face to face.
She said: “This system will only work if the customer attends the showroom. If the car is to be delivered, then this will not work as concluding the sale at a customer’s home will be considered an off-premises sale and there will be extra hoops to jump through.”
Carroll’s advice to any dealer considering implementing a distance sales scheme is to look at getting some tailored legal advice to fully understand the risks to their business.
He said: “If you are member of an industry body, you may have access to legal advice and assistance.”